Bba LLB SEC E_quiz2_principles Of Accounting
Maximum Marks for this Quiz will be 30.
Ten questions carry 2 marks with a negative mark of. 5 (1/4) for each wrong answer. (10x2)
Two questions have 5 marks with a negative mark of 1.25 (1/4) for each wrong answer. (2x5)
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- 1.
The Cash Flow Statement can be prepared with Direct or Indirect Method. The difference in presentation between both the methods affects
- A.
Investing Section only
- B.
Operating Section only
- C.
Financing Section only
- D.
All of the above
Correct Answer
B. Operating Section onlyExplanation
The correct answer is "Operating Section only". The difference in presentation between the direct and indirect methods of preparing the cash flow statement only affects the operating section. The operating section of the cash flow statement shows the cash flows from the company's core operations, such as revenue and expenses. The direct method directly lists the cash inflows and outflows from operating activities, while the indirect method adjusts the net income for non-cash items and changes in working capital to arrive at the operating cash flow. Therefore, the difference in presentation only impacts the operating section of the cash flow statement.Rate this question:
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- 2.
5 Marks Question: A company's income statement showed the following: net income, $134,000; depreciation expense, $30,000; and gain on sale of plant assets, $4,000. An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $9,400; merchandise inventory increased $18,000; prepaid expenses increased $6,200; accounts payable increased $3,400. Calculate the net cash provided or used by operating activities
- A.
$156,600
- B.
$141,000
- C.
$96,600
- D.
$88,600
- E.
$148,600
Correct Answer
E. $148,600Explanation
The net cash provided or used by operating activities can be calculated using the indirect method of preparing the cash flow statement. In this case, we need to adjust the net income by adding back non-cash expenses (depreciation expense) and subtracting non-cash gains (gain on sale of plant assets). Additionally, changes in current assets and liabilities need to be taken into account. The decrease in accounts receivable indicates cash received, the increase in merchandise inventory indicates cash used, the increase in prepaid expenses indicates cash used, and the increase in accounts payable indicates cash provided. By making these adjustments, we find that the net cash provided or used by operating activities is $148,600.Rate this question:
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- 3.
The statement of cash flows reports all but which of the following?
- A.
Cash flows from operating activities.
- B.
Cash flows from financing activities
- C.
​​​​​​Cash flows from investing activities.
- D.
Significant noncash financing and investing activities
- E.
The financial position of the company at the end of the accounting period.
Correct Answer
E. The financial position of the company at the end of the accounting period.Explanation
The statement of cash flows reports the cash flows from operating activities, financing activities, and investing activities. It also reports significant noncash financing and investing activities. However, it does not report the financial position of the company at the end of the accounting period. This information is typically found in the balance sheet.Rate this question:
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- 4.
Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as
- A.
Financing activities.
- B.
Investing activities.
- C.
Operating activities.
- D.
Indirect activities
Correct Answer
C. Operating activities.Explanation
Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as operating activities. Operating activities are the core activities of a business that generate revenue and incur expenses. These activities are directly related to the primary goal of the business, which is to generate profit. Financing activities involve obtaining funds from external sources or providing returns to investors, while investing activities involve the acquisition or disposal of long-term assets. Indirect activities is not a recognized classification in accounting.Rate this question:
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- 5.
The appropriate section in the statement of cash flows for reporting the purchase of equipment for cash is
- A.
Operating activities
- B.
Financing activities
- C.
Investing activities.
- D.
This is not reported on the statement of cash flows
Correct Answer
C. Investing activities.Explanation
The purchase of equipment for cash is reported in the investing activities section of the statement of cash flows. This section is used to report cash flows related to the acquisition or disposal of long-term assets, such as property, plant, and equipment. Since the purchase of equipment is a capital expenditure and not a regular operating expense, it is classified as an investing activity. Financing activities involve cash flows related to borrowing or repaying debt, issuing or buying back stock, or paying dividends, which are not applicable in this scenario.Rate this question:
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- 6.
5 Marks Question: The accountant for Mandarin Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: What is the amount of cash dividends paid that should be reported in the financing section of the statement of cash flows?
- A.
$42,000
- B.
$43,000
- C.
$63,000
- D.
$1,000
- E.
$41,000
Correct Answer
E. $41,000Explanation
The amount of cash dividends paid that should be reported in the financing section of the statement of cash flows is $41,000. This is because the financing section of the statement of cash flows includes activities related to the company's financing, such as issuing or repurchasing stocks, paying dividends, and borrowing or repaying debt. Since the question specifically asks for the amount of cash dividends paid, we can conclude that the correct answer is $41,000.Rate this question:
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- 7.
Which of the following items is reported on the statement of cash flows under financing activities?
- A.
Declaration of a cash dividend
- B.
Payment of a cash dividend
- C.
Declaration of a stock dividend.
- D.
Payment of a stock dividend.
- E.
Payment of stock dividend
Correct Answer
B. Payment of a cash dividendExplanation
The payment of a cash dividend is reported on the statement of cash flows under financing activities because it represents a cash outflow from the company to its shareholders. Financing activities involve transactions that affect the company's capital structure and include activities such as issuing or repurchasing stock, paying dividends, and borrowing or repaying debt. Therefore, the payment of a cash dividend falls under this category as it represents a distribution of cash to shareholders and affects the company's financing activities.Rate this question:
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- 8.
Which one of the following is representative of typical cash flows from operating activities?
- A.
Proceeds from collecting the principal amounts of loans.
- B.
Repayment of principals on loans.
- C.
Proceeds from the issuance of bonds and notes payable
- D.
Payments by a merchandiser to acquire equity securities of other companies
- E.
Receipts of cash sales
Correct Answer
E. Receipts of cash salesExplanation
The correct answer is "Receipts of cash sales." This option represents cash flows from operating activities because it involves the collection of cash from customers in exchange for goods or services. Cash sales are a common source of revenue for businesses and are considered a typical cash inflow from operating activities.Rate this question:
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- 9.
The statement of cash flows cannot help address questions such as
- A.
How is the increase in investments financed?
- B.
What is the source of cash for new plant assets?
- C.
How much cash is generated from or used in operations?
- D.
How much of the company's revenues have been retained as profit?
- E.
Why is cash flow from operations different from income?
Correct Answer
D. How much of the company's revenues have been retained as profit?Explanation
The statement of cash flows provides information about the cash inflows and outflows of a company, but it does not specifically address the question of how much of the company's revenues have been retained as profit. This information is typically found in the income statement or retained earnings statement. The statement of cash flows focuses on the sources and uses of cash, including financing activities, investing activities, and operating activities. It helps answer questions about the company's cash flow from operations, the source of cash for new plant assets, and how the increase in investments is financed.Rate this question:
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- 10.
When preparing a statement of cash flows using the indirect method, each of the following should be classified as an operating cash inflow or outflow except
- A.
An increase in accounts receivable.
- B.
A decrease in accounts payable.
- C.
Proceeds from the disposal of a long-term asset with no gain or loss.
- D.
An increase in prepaid expenses.
- E.
A decrease in accrued expenses payable.
Correct Answer
C. Proceeds from the disposal of a long-term asset with no gain or loss.Explanation
When preparing a statement of cash flows using the indirect method, each of the options listed represents a transaction that would be classified as an operating cash inflow or outflow except for proceeds from the disposal of a long-term asset with no gain or loss. This transaction would be classified as an investing activity in the statement of cash flows.Rate this question:
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- 11.
Use the following information to calculate cash paid for wages and salaries: Salaries expense $168,000 Salaries payable, January 1 6,400 Salaries payable, December 31 10,600
- A.
$157,400
- B.
$163,800
- C.
$168,000.
- D.
$172,200
- E.
$174,400.
Correct Answer
B. $163,800Explanation
The cash paid for wages and salaries can be calculated by subtracting the change in salaries payable from the salaries expense. In this case, the change in salaries payable is calculated as the salaries payable at the end of the year minus the salaries payable at the beginning of the year, which is $10,600 - $6,400 = $4,200. Therefore, the cash paid for wages and salaries is $168,000 - $4,200 = $163,800.Rate this question:
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- 12.
When preparing a statement of cash flows using the indirect method, which of the following is correct?
- A.
Proceeds from the sale of equipment should be added to net income in the operating activities section
- B.
A loss on the sale of land should be added to net income in the operating activities section
- C.
The declaration of a cash dividend should be a use of cash in the financing activities section
- D.
The issuance of a stock dividend should be a use of cash in the financing activities section.
- E.
The issuance of a stock dividend should be a use of cash in the financing activities section.
Correct Answer
B. A loss on the sale of land should be added to net income in the operating activities sectionExplanation
The statement of cash flows using the indirect method starts with net income from the income statement. Any non-cash expenses or losses, such as a loss on the sale of land, should be added back to net income in the operating activities section. This adjustment is made because the loss does not involve an outflow of cash and is therefore not reflective of the company's cash position.Rate this question:
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Current Version
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Mar 15, 2023Quiz Edited by
ProProfs Editorial Team -
Oct 16, 2019Quiz Created by
Prof.Priyesh
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